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Kinds of corporation Stock corporation- dividends are received by the stockholders as return of investment. 2. Non-stock corporation- organized for charitable purposes and civic investments  The articles of incorporation are binding within the period of 6 months.  The general rule is that a corporation is vested by law with a personality separate and distinct from the persons composing it, including its officers as well as from that of any other legal entity to which it may be related.  Accordingly, corporate officers acting within the scope of their authority are not personally liable for damages or labor claims of its employees, unless it is alleged and shown that such officers deliberately and maliciously designed to evade the financial obligation of the corporation to its employees, or used the corporate fiction as a means to perpetrate an illegal act or as a vehicle for the evasion of existing obligations, the circumvention of statutes, or to confuse the legitimate issues, in which case the separate corporate personality is disregarded.  The by-laws are the governing rules and regulations of the corporation.  The members should not be less than 5 but not more than 15.  It should be registered at the Securities and Exchange Commission (SEC).  In order that the SEC can take cognizance of a case, the controversy (INTRACORPORATE CONTROVERSY) must pertain to any of the following relationships: 1. between the corporation, partnership or association and the public 2. Between the corporation, partnership or association and its stockholders, partners, members, or officers. 3. between the corporation, partnership, or association and the state in so far as its franchise, permit or license to operate is concerned 4. among stockholders, partners or associates themselves  The SEC is vested with the jurisdiction, supervision and control over all corporations which are enfranchised to act as corporate entities. The fact that a corporation which requires a license or permit from another government agency does not restrict such supervision.  The corporation continues to be vested with legal personality until it is dissolved according to law and SEC continues to have jurisdiction over it.  Meetings of the directors must be personal while stockholders meeting, proxy voting is allowed 1.  Any natural person can become incorporators except under the Rural Banking Act in relation to the Development Cooperative Law. But a corporation can become a subscriber of a corporation. Composition of articles of incorporation 1. Name  Must not be misleading  Must not be a name of a past president  Must not be in resemblance with the Phil flag 2. Name of incorporators 3. address of incorporators  The incorporators are the original signatories of the corporation  The capital of the corporation has no limit but must not be less than Php 5,000.00.  Differentiate Corporators from Incorporators INCORPORATORS Signatory of Articles Do not cease to be such Number is limited to 5 to 15 Must have contractual capacity Temporary Officers 1. President- must be a stockholder of the corporation 2. Secretary- may not be a stockholder 3. Treasurer- may not be a stockholder Contribution 1. money The general rule is that a check is not allowed except if it is a managers check or cashiers check 2. services The general rule is that it is allowed except if it is for future services 3. valuables It should be with something of value and must be appraised by a committee to determine its value  The treasurers affidavit should be 25% of capital actually subscribed and 25% of it is already paid.  The lifetime of a corporation is 50 yrs and must be renewed on the 45th year.  An advantage of a corporation is that it can obtain loans from banks.  The certificate of incorporation is issued by the SEC as a proof of the existence of a duly registered legal and organized corporation. CORPORATORS Stockholder of stock corporation or member of non-stock corporation Cease to be such if they are no longer stockholders No restriction as to number May be such through his guardian

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 The meeting of stockholders shall always be at the principal office of the corporation and held annually.  The Board of Directors is only entitled of per diem unless denied by the stockholders.  The President, secretary and treasurer are entitled to a salary that should be duly approved by the stockholders provided they do not exceed 10% of the net income before income tax.  From the issuance of certificate of incorporation within 2 yrs, they must elect their officers from the start of their business. NOTA BENE: 1. A corporation cannot donate to a political body 2. The government cannot organize a private corporation but can create a corporation like the PNB, Summit Bank and Land Bank of the Philippines. DOCTRINES OF CORPORATION LAW  Preferred Creditors  Piercing the veil of a corporate entity An agreement to organize a corporation is valid for 6 months and no one can withdraw without the consent of another. If the corporation was organized to commit fraud, to avoid any liability, hence the corporation and the stockholders are one and the same person. The general rule is that the death of the stockholders is not the death of the corporation except when the corporation is considered as one, therefore the death of the stockholder is also the death of the corporation. Factors that may justify piercing the corporate veil 1. stock ownership by one or common ownership of both corporations 2. identity of directors and officers 3. manner of keeping corporate books and records 4. methods of conducting business  Go Kong Wei Doctrine A director cannot be elected in two (2) corporations, where the business of the two (2) corporations is similar.  genosssenshaft theory - a theory holding that De jure One created in strict or substantial conformity with the statutory requirements for incorporation Right to exist cannot be successfully attacked even in a direct proceeding by the state 1. taxes for the government 2. creditors of the corporation 3. stockholders  De Jure Corporation A corporation duly organized in accordance with law is a de jure corporation  De Facto Corporation The following are instances of a De facto Corporation 1. a corporation with defect 2. the SEC issued a certificate of incorporation even if the incorporators are insufficient 3. the corporation is not authorized 4. the treasurers affidavit is not correct Note: Only the government can question the de facto government for which the Office of the Solicitor General will issue a quo warranto proceeding De jure vs. de facto De facto One which actually exists for all practical purposes as a corporation but which has no legal right to corporate existence as against the State Right to exist can be successfully attacked in a direct proceeding by the state  Trust Fund Doctrine It is the obligation of the officers of the corporation to protect the fund of the corporation for the benefit of the stockholders and the creditors Examples of cases involving Trust Fund Doctrine When the corporation releases or condones payment of the unpaid subscription b. When there is payment of dividends without unrestricted earnings c. When properties are transferred in fraud of creditors d. When properties are disposed or undue preference is given to some creditors even if the corporation is insolvent a. subscribed and 25% of the subscribed capital must be fully paid (treasurers affidavit).

corporation's existence does not depend on the consent of the state. it remains a legal entity despite lack of consent and concession there from.
A corporation is independent from Governmental control, rules and regulations  Capital Stock There is no maximum capital of the corporation, but the minimum is five thousand pesos ( Php 5,000.00). 25% of the capital stock must be

 Doctrine of Corporate opportunity The doctrine states that if there is presented to a corporate officer or director a business opportunity for which the corporation is financially able to undertake, is from its nature in line with the corporations business and is of practical advantage

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expectancy, and by embracing the opportunity, the self interest of the officer or director will be brought into conflict with that of the corporation, the law will not permit him to seize the opportunity for himself.  Corporation by Estoppel One, which has been issued a certificate of registration, but is considered a corporation by estoppel precluding either the person behind, or third parties dealing with it to deny its corporate existence. It is also known as ostensible corporation Solutio indebiti- unjust enrichment Negotiorium gestio-unauthorized management  Voting trust agreement a voting trust is a trust created by agreement between a group of stockholders and the trustee or by a group of identical agreements between individual stockholders and a common trustee, whereby it is provided that for a term of five years, or for a period contingent upon a certain event, or until the agreement is terminated, control over the stock owned by such stockholders, either for certain purposes or for all purposes, is lodged in the trustee, either with or without a reservation to the owners, or persons designated by them, of the power 6to direct how such control shall be used. The law simply provides that a voting trust agreement in writing whereby one or more stockholders of a corporation consent to transfer his or her shares to a trustee in order to vest in the latter voting for other rights pertaining to said shares for a period not exceeding five (5) years upon the fulfillment of statutory conditions specified in the agreement. The five year period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan  Voting rights in a corporation It is a fundamental rule that a stockholder acquires voting rights only when the shares of stock to be voted are registered in his name in the corporate books. An unrecorded transferee cannot enjoy the status of a stockholder, he cannot vote nor be voted for, and he will not be entitled to dividends  Intra-vires Lawful act of the corporation Powers of a corporation a. Express those expressly authorized by the Corporation Code and other laws, and its Articles of incorporation or charter - enumerated powers (to sue and be sued, to collect or acquire property) c. Incidental/inherent Powers those that are incidental to the existence of the corporation - same as express powers

Note: there are express powers that are incidental powers like the power to acquire property. A corporation can exercise not only powers expressly conferred upon it by its charter but also those that may be reasonably necessary or proper to promote the interest or welfare of the corporation. If the act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, is a substantial, and not in a remote and fanciful sense, it may fairly be considered within the charter powers. The test is whether the act is in direct and immediate furtherance of the corporations business, fairly incident to the express powers and necessary to their exercise. If so, the corporation has the power to do it; if otherwise, not.  Ultra-vires Acts corporation outside the powers of the Kinds 1. void per se (illegal act)- void abinitio 2. voidable- valid until annulled\ four (4) years prescription 3 stages of voidable ultra vires acts 1. executory on both sides 2. executory on one side/executed on other side 3. already executed by both parties Kinds of Ultra Vires Acts 1. executory on both sides this could be set aside. 2. Executor on one side and executed on the other side if the corporation has already received the benefits, it must honor the contract 3. Executed on both sides if both parties have already benefited, both should honor a contract  Nationality of a Corporation(Grandfathers Rule) The citizenship of a private corporation registered in the Philippines is determined by the citizenship of the controlling stockholders, in accordance of the control test. It is also the place of incorporation or where the or where the corporation is organized.  Control test In times of war, the corporations in the Philippines are controlled by the enemies

1.

par value share- the amount is written in the certificate of stock

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b. Implied powers those that can be inferred from or necessary for the exercise of the express powers - those agreed upon

Kinds of shares/stocks

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2. no par value share- the amount of share is not included, but should not be less than Php 5.00 3. treasury share- reacquired by the corporation from a stockholder by donation, when the shares are delinquent, when the corporation buys the share to make it even 4. redeemable share- there is a stipulation in the contract -When there is one contract, the latter provision prevails 5. Founders share- it is good for 5 years. -given to the founders of the corporation Distinction of share of stock and certificate of stock Share of stock Unit of interest in a corporation Certificate of stock Evidence of the holders ownership of the stock and of his right as a shareholder and up to the extent specified therein It is concrete and tangible May only be issued only if the subscription is fully paid  A subscription contract is executed when a person buys a stock/share for which it stipulates the terms of payment.  A call resolution is a resolution demanding the payment of the balance of the subscription contract.  To validate the buying of a share of stock, the owner/seller must surrender the certificate of stock to the buyer. The buyer must go to the stock and transfer clerk of the corporation to cancel the certificate of stock in the name of the seller and the stock and transfer clerk must issue another stock certificate in the name of the buyer.  Baltazar Doctrine- if a stockholder has not fully paid his share, the corporation will only issue a certificate of sock equivalent to the amount paid. However, this doctrine is no longer in effect, the SEC will only serve or issue a certificate of stock until the shares are fully paid.  Doctrine of equality of shares It provides that where the Articles of Incorporation do not provide for any distinction of the shares of stock, all shares issued by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the same liabilities.  Vote required in board resolution 1. majority vote as a general rule 2. all other vote, 2/3 vote  one-man corporation- one man controls corporation in terms of voting in the following: 1. extension of corporate life 2. investment in other corporation 3. merger 4. consolidation 5. dissolution the

It is an incorporeal or intangible property It may be issued by the corporation even if the subscription is not fully paid  Watered stock

Watered stock is those issued not in exchange for its equivalent either in cash, property, share, stock dividends, or services; thus, the issuances of such stocks are prohibited. These include stocks: a. Issued without consideration (bonus share) b. Issued as fully paid when the corporation has received a lesser sum of money than its par or issued value(discounted share) c. Issued for consideration other than actual cash (i.e. property or services), the fair valuation of which is less than its par or issued value d. Issued as stock dividend when there are no sufficient retained earnings or surplus to justify Note: Directors or officers who consented to its issuance is solidarily liable to the corporation for the difference in value  Stock and transfer books are the responsibility of the secretary who is in-charge of transferring shares for which he must file a surety bond to protect the stockholders.  A corporation by prescription is a corporation that need not to be registered because they already existed before the effectivity of the corporation code, they antedated the corporation code (churches)

 The Board of Directors is the governing body of the corporation composed of 15 members.  Only natural persons can become incorporators exception is the Rural Bank Act in relation to the Cooperative Development Act for which the cooperative can borrow money from the rural bank, therefore, the rural bank may become an incorporator.  Requirements for corporation 1. not less than 5 persons but not more than 15 2. agreement is good for 6 months 3. articles of incorporation 4. by laws 5. treasurers affidavit  Proxy Voting It is not allowed in meeting of directors but it is allowed in stockholders annual meeting, it is also allowed if there is an SPA Rights of a stockholder

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1.

to receive dividends

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2. to inspect the books of the corporationthere must be no conflict of interest, under doctrine of corporate opportunity 3. to sell his shares without consent of othersdelectus personae Kinds of dividends cash dividend- mandatory if there is an excess of 100% on net surplus 2. stock dividends- not taxable  A call resolution to pay subscription must be enacted by the Board of Directors  The declaration of dividends can be revoked by the Board of Directors if it is not yet announce to the stockholders.  If the dividends are deposited in a bank, the resolution cannot be revoked.  A foreigner can be a stockholder in a nationalized corporation provided that the shares shall be 60% Filipino and 40% foreigner.  Election of Board of Directors- cumulative voting is mandatory in the election Qualifications: 1. legal age 2. have knowledge in corporation law Disqualifications: Can all the stockholder in a corporation be foreigners? 1. conviction of a crime involving moral turpitude and the penalty is more than 6 years 2. Violation of corporation code in 5 years prior to the election.  Under the doctrine of cumulative voting, the shares of stockholders shall be multiplied to the number of candidates to determine how many votes a stockholder will have.  A corporation is not entitled to moral damages except in violations of the intellectual property law where the Philippines is a member. Kinds of Damages 1. 2. 3. 4. 5. moral liquidated nominal actual exemplary Yes, except in fully or partly nationalized corporations. For example, a manufacturer that exports all its products can be wholly-owned by foreigners What are the fully and partly nationalized corporations? 1. Where no foreign stockholder is allowed. Mass Media except recording (Art XVI, Sec 11, Constitution) b. Retail trade enterprises with paidup capital of less than US$ 2.5 Million (Sec 5, RA No 8762) c. Private security agencies (Sec 4, RA No 5487) d. Small scale mining(Sec 3, RA No 7076) e. Utilization of natural resources (Art XII, Sec 2, Constitution) f. Cockpits (Sec 5, PD 449) g. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art II, Sec 8, Constitution) h. Manufacture of firecrackers and other pyrotechnic devices (Sec 5, RA No 7183) 2. Up to twenty percent (20%) foreign equity a. Private radio communications network (RA No 3846) a. 1.  An open corporation is a corporation for which the shares of stock are open to the public.  A religious sole is a corporation formed by head of churches. A corporation sole can buy land in the Philippines because it is owned by the head of the church.  A foreign company must register to the SEC in order to validly do business in the Philippines.  A religious sole/religious corporation cannot sell their property without the approval from the RTC, except, when approved by their parish church, to protect the rights of the members of the church Foreign Corporation A foreign corporation must secure a license and appoint a resident agent before it is allowed to do business in the Philippines 2. There is a contract of reciprocity between the Philippines and the country where the corporation was organized. 3. That with respect to Intra- corporate Controversy, the law of the foreign corporation where it is organized shall govern. 4. In stockholders meeting, all preferred and common stockholders should be notified to vote, although as a general rule, a preferred stockholder is not entitled to vote. 1.

 Pre-emptive right is the right of first refusal, the stockholder sells his shares first to co-stockholders before selling to the public  Appraisal right is the right of the stockholder to determine the price of his share. If there is a conflict in the decision, they shall form a 3-man committee to determine the price, the decision of the 3-man committee is final.  A close corporation is a family corporation composed of the members of the family, nonmember of the family is not allowed(20 members)

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3. Up to twenty-five percent (25%) foreign equity

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a. Private Recruitment, whether local or overseas employment (Art 27, PD No 442) b. Construction and repair of locally funded works (Sec 1, CA 541) corporation shall pay the expenses of the conservator 3. Receivership when the corporation is bankrupt and cannot pay its debts, the SEC will assign an administrator or receiver to collect all the assets and debts owning in the corporation to pay the debtors.  An interlocking directorate is a person who is a directorate in two corporations with more than 20% of outstanding capital  The general rule is that an interlocking director cannot engage into a contract between the corporation except when it is approved by the board via a 2/3 vote in favor for which the interlocking director shall not participate.  Directors, officers, stockholders and related interest cannot borrow from their own corporation except when there is approval by the Board of Directors where the borrowers inhibit themselves and there must be approval from the SEC. Removal of a Director (Grounds) 1. any ground provided 2. removed by 2/3 vote of the outstanding capital stocks 3. there must be a meeting for the removal 4. the director sought to be removed must be duly notified  Executive Committee is delegated by the Board of Directors of their powers and duties (e.g. repeal/adoption of bylaws, removal of directors, declaration of cash dividends Kinds of Franchise Primary franchise- the law authorizing the formation of a corporation(the corporation code 2. Secondary franchise- the moment a corporation is organized, it enjoys some powers. These powers are called secondary franchise  A merger is the absorption of a corporation of another corporation. It is allowed provided that the debts of the corporation are absorbed by the absorbing corporation.  A consolidation is the joining together of two or more corporations. It is allowed provided that the debts of the corporations are not extinguished.  The merger of air and land transport is prohibited.  Liabilities of officers/directors of a corporation 1. conflict of interest 2. engage in business in competition with the corporation 3. entering in illegal/unlawful contract  The officers/directors are solidarily liable to the stockholders in approving unlawful/illegal contracts. 1.

4. up to forty percent (40%) foreign equity a. Exploration, development and utilization of natural resources (Art XII, Sec 2, Constitution) b. Realty companies and other corporations that own private lands (Art XII, Sec 7, Constitution) c. Operation and management of public Utilities (Art XII, Sec 11, Constitution) d. Culture, production, milling, processing, trading except retail of rice and corn and by-products (Sec 5, PD No 194; Sec 15, RA No 8762 e. Adjustment companies (Sec 323, PD No 612) f. Sauna and steam bath bathhouses, massage clinics and similar activities (RA No 7042)

5. up to sixty percent (60%) foreign equity a. Financing companies (Sec 6, RA No 5980, as amended by RA No 8556) b. Investment houses (Sec 5, PD No 129, as amended by RA No 8366)

Foreign Corporation power to sue and be sued Suit by a foreign corporation the foreign corporation transacting business in the Philippines without a license to do business shall not be permitted to maintain or intervene in any court or administrative agency. b. Suit against a Foreign Corporation Any foreign corporation transacting business in the Philippines whether or not with a license, may be sued against/before Philippine Courts or administrative tribunals on any valid cause of action recognized under Philippine Laws (Doctrine of Quasi- Estoppel by acceptance of benefits)\ Kinds of Suit Class Suit there are many stockholders who have the same problem, but a few of them can file the suit in their behalf 2. Individual Suit a stockholder whose right have been violated 3. Derivative suit the officers and directors are the ones liable, hence any stockholder can sue in behalf of the corporation Remedies in a corporation Rehabilitation- if the corporation cannot pay the obligations on time, it should file in court a case of rehabilitation 2. Conservatorship- there is mismanagement in the corporation; the SEC will assign/appoint a conservator to manage the corporation and to have a better management. The period for conservatorship shall be 0ne (1) year, the 1. 1. a.

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 The remedy of an officer/director is to write to the President of the corporation thru the SEC stating his objection to the contract.  When there is no meeting in the corporation a petition must be filed to the SEC to become an acting president for the purpose of conducting a meeting. A corporation must organize (elect officers) within 3 years and transact business within 5 years, otherwise its franchise will be cancelled by the SEC. The corporation code is a penal law as provided for in Sec 144. A share of stock is a chattel and if foreclosed must be redeemed before its foreclosure  In case of non-stock corporation 1. scheme/schedule of distribution of assets 2. if a scheme is not made, the assets of the corporation shall be given to the municipality where the corporation holds its principal office  Cuentas in participation- not registered, two or more persons are partners but only one appears as owner and is the one liable  Watered stock- the consideration given is below the value of the shares of stock or consideration is over valued  In case of overvalued consideration, the one who issued the certificate and the buyer is liable solidarily for claims of creditors and other stockholders. `

2 kinds of stockholder Preferred stockholder- an investor of the corporation. Not entitled to vote, when the corporation is dissolved, return of investment is first given to the preferred stockholder 2. common stockholder- with voting rights  both are required to vote in the following instances: 1. 2. 3. 4. 5. 6. dissolution of corporation (2/3) merger/consolidation shortening or extending corporate life management contract investment of funds amendments of incorporation 1.

 the membership to a non-stock corporation is nontransferable  a non-stock school can demand tuition fees but it cannot be used to diem of the Board of Directors but the improvement if facilities and wages of teachers. an increase in increase the per can be used for increase in the

Grounds for dissolution 1. violation of corporation code 2. insolvency 3. shortening of corporation code(corporate life)  Stages of dissolution 1. dissolution- upon filing of petition, the corporation shall cease its business operation (It cannot transact business anymore) a) voluntary- the stockholders pass a resolution thru the BOD to dissolve/shorten the life of the corporation b) involuntary- upon petition of 3 creditors/upon order for violation of corporation code(failure to submit annual report, failure to keep record of book of corporation)

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2. Liquidation- 5 years period of liquidation-the SEC shall appoint a receiver who shall collect the debts and assets of the corporation. (to recover debts due to the corporation) 3. Winding-up all obligations of the corporation have been settled 4. Distribution of the assets of preferred stockholders